Full opinion text
McCORMICK, District Judge. This is a suit in equity, wherein the United States of America seeks to have declared null, void, and. of no effect two contracts, dated April 25, 1922, and December 11, 1922, respectively, and two oil and gas leases to lands in the naval petroleum reserves in California, dated June 5, 1922, and December 11, 1922, respectively. The prayer of the bill is that these agreements and leases be canceled, for an accounting, and for general relief. The relief is sought upon two grounds: First, fraud in the making of the contracts and leases; and,'second, lack of legal authority for their making. The ease has received the careful consideration that its importance demands, but existing circumstances, due to pressure and volume of work in the court, do- not admit of the preparation of a detailed opinion upon every issue. • The formal decision upon all issues consists of the findings of fact and conclusions of law filed herewith. I feel impelled, however, to amplify such decision by this statement. I will first consider the charge of fraud and official misconduct in the making of the contracts and leases in suit; and, secondly, whether the agreements were made pursuant to any legal authorization. The first involves mixed questions of law and fact, while the latter is solely a legal question. The contracts and leases in suit may be epitomized as follows: The agreement of April 25, 1922, is between the Pan-American Petroleum & Transport Company, a corporation, called the “contractor,” and the United States of America, by the Acting Secretary of the Interior and the Secretary of the Navy thereof, denominated the “government.” It recites ‘ ‘ that by virtue of authority contained in and the policy expressed by applicable acts of Congress, and in accordance with ‘Proposal B’ of the contractor, dated April 14, 1922, the parties hereto have mutually covenanted and agreed with each other as follows”: Article I; — The contractor, for the consideration mentioned in the contract, and under the penalty of a bond of $250,000, agrees to faithfully and fully furnish 1,-'500,000 barrels of fuel oil and storage facilities 'for said fuel oil, which the contractor .also agrees to construct at Pearl Harbor, territory of Hawaii, in accordance with “Proposal'B” and plans and specifications to be furnished by the government. Article II — Declares the intention of the parties is to effect an exchange of crude oil unsuitable for Navy use for fuel oil, the crude oil being produced from naval petroleum reserves Nos. 1 and 2, in California, and being property of the government, and the fuel oil to be delivered by the contractor at the naval station at Pearl Harbor, territory of Hawaii. Article III — The contractor covenants to furniish the 1,500,000 barrels of fuel oil and to deliver such oil into storage facilities, to be constructed and erected by the contractor for a lump sum, of 5,878,905 barrels of Crude oil from naval petroleum ■reserves Nos. 1-and 2 “of from 14 to 17.9 degrees (Baumé) gravity, or crude oil in such other quantity and quality as' shall be of equal value, which lump sum is termed the ‘proposal sum.’ ” Article III further provides: “It is hereby mutually understood and agreed that said ‘proposal sum’ is based upon the November-Deeember, 1921, published field price of California crude oil of from 14 to 17.9 degrees (Baumé) gravity ($1.10 per barrel), which for the purposes of this agreement shall be termed the ‘reference price of basic crude oil,’ and upon the November-Deeember, 1921, market price of fuel oil at Bay Point, Cal. ($1.50 per -barrel), which for the purposes of this agreement shall be termed the ‘reference price of fuel oil.’ ” Then follows a clause that deals with the change of gravity of oils, in which computations and allowances are made under the contract, dependent upon the variations in the market prices of crude and fuel oil during the life of the contract, and provision is made for the acceptance of “basie crude oil” of other gravity, which is termed “particular crude oil.” It is provided that, if delivery of “particular crude oil” is made under the contract, certain debits and credits will be extended at the ratio which the “published field price” of such “particular crude” on the date of delivery bears to the “reference price of basic crude.” It is further agreed that any difference in debits and credits under the contract shall bear interest at the rate of 5 per cent, per annum, the interest to be allowed in barrels of basic crude oil. Article IV — The government agrees to deliver to the contractor at the place of production each month “all the royalty oil that may be furnished by its lessees in reserves Nos. 1 and 2, until all claims of the contractor under the contract are satisfied. ’ ’ Article V — Vests the Secretary of the Interior with exclusive discretion to grant additional leases on any lands he may designate in reserve No. 1, so as to maintain total deliveries of royalty oil under the contract at the approximate rate of 500,-000 barrels per annum. Article VI — Requires the government to deliver to the contractor on account of the “proposal sum” all royalty oil from reserves Nos. 1 and 2 which had been accumulated and was in storage at the time the contract was made. Article VII — Requires the contractor to take the crude oil at the wells and bear every expense incident to its movement, and further requires the contractor to deliver the fuel oil in storage at Pearl Harbor, T. H., and to pay for the transportation of the fuel oil to storage, and permits the contractor to supply the fuel oil in storage in any amount it may elect, providing that the required contract amount be entirely furnished and delivered in storage within the time that the government has furnished sufficient royalty oil to pay for the contracted fuel oil and storage facilities. Article VIII — Specifies how and where the fuel oil is to be gauged. Article IX — Concerns' the payment of demurrage in the event that the contractor’s tankers are delayed in discharging fuel oil at Pearl Harbor, the calculation of demurrage being made in barrels of oil and added to the “proposal sum.” Article X — Relates to increasing or diminishing the “proposal sum” to meet the contingency of more or less or different concrete piles being required to provide the storage facilities at Pearl Harbor than are shown by the drawings and specifications. Article XI — Confers the preferential right on the contractor, and covenants that “if, during the life of this contract, future leases shall be granted” — within a certain portion of reserve No. 1 — “the contractor shall first be called upon by the Secretary of the Interior to meet such drilling conditions and to pay such royalties as the Secretary may deem just and proper, and in the event of his acceptance of such conditions, and of his agreement to pay such royalties, the contractor shall be granted by the government a preferential lease on such tracts as the Secretary of the Interior may decide to lease in the event of the failure of the contractor to agree to the conditions and royalties as proposed by the Secretary of the Interior, then said lease or leases may be offered for competitive bidding, but the contractor shall have a right to submit a bid on equal terms with others engaged in said bidding.” Article XII — Provides for the giving to the government of any saving in the cost of the construction of the storage facilities, should said cost be less than 3,197,086 barrels of “basic crude oil” at “reference price” thereof, such saving to be determined by agreement between the Secretary of the Interior and the contractor, and to be expressed by crediting such saving in barrels of “basic crude oil” on account of the “proposal sum.” The lease of June 5,1922, was incidental to and in pursuance of the April 25, 1922, contract. It was granted at the request of the defendants and to enable the contractor to more speedily perform the said contract. It was given without competitive bidding and solely to effectuate the preferential right of article XI of the April 25 contract. The parties were the United States of America, acting through the Secretary of the Interior, and the Pan-American Petroleum & Transport Company, a corporation. It recites, inter alia, that it is made pursuant to authority of an act of Congress approved June 4, 1920 (41 Stat. 812), making appropriations for naval service and other purposes. It granted the exclusive right to drill for, extract, remove, and dispose of all oil and gas deposits in the northeast quarter of section 3, township 31 south, range 24 east of the Mt. Diablo meridian, California, for a period of 20 years, with a certain preferential right of 10 years additional. Certain drilling requirements are stated, and the-royalties to be paid the government under the lease range from 12y2 per cent, for 20 barrels or less per day to 45 per cent, for 400 barrels or more per day for oil produced of 30 degrees or over (Baumé), and from 12% per cent, to 35 per cent, for oil of less than 30 degrees (Baumé). The lease also provides for payment of certain royalties for gas and casing-head gasoline pro-dueed from wells under the lease. There are other provisions which are of no particular consequence in the present inquiry. The contract of December 11, 1922, was made between the same parties as the April 25, 1922, agreement, but was signed on behalf of the government by Albert B. Fall, Secretary of the Interior, in person. Its preamble recites the making of the contract of April 25, 1922, and the purposes and intent thereof — i. e., to effect an exchange of royalty crude oil from naval reserves for fuel oil in storage at Pearl Harbor, T. H., including tanks and incidental facilities —and that “it is now desired to fill said tanks as promptly as they are individually completed, and also to procure for the Navy additional amounts of fuel oil and other petroleum products in storage at Pearl Harbor, T. H., and elsewhere, and the Secretary of the Navy in his letter of November 29, 1922, * * * has requested the Secretary of the Interior, as administrator of the naval petroleum reserves, to arrange for such additional fuel oil and other petroleum products in storage through exchange therefor of additional royalty crude oil belonging to the government in said California naval reserves, the probable cost of the additional products and storage immediately planned for being estimated at $15,000,000, more or less.” It states the willingness of the contractor to do the work and furnish the oil, and then continues: “And whereas, the furnishing of such additional amounts of fuel oil and other products in storage on the basis of exchange for the government royalty crude oils cannot be accomplished from the present leases in the California naval reserves.” Mention is then made of the preferential right of the Pan-American Petroleum & Transport Company to leases in naval reserve No. 1, as provided in the April 25, 1922, contract, the agreement reciting that the contractor “is planning to provide refinery facilities at Los Angeles, Cal., for 10,000 barrels per day, to be increased to 20,000 per day as soon as the situation justifies, together with pipe lines connecting the leases in the field and the refinery and docks, and to erect storage to the amount of 2,000,000 barrels or more.’'’ Then follows: Article I — Providing for a bond of $250,-000 to insure compliance with the agreement, specifying E. L. Doheny as guarantor on said bond. Said article of the agreement continues in paragraphs substantially as follows: (1) Makes provision for the contractor to furnish the fuel oil required under the April 25, 1922, contract, and to fill the storage tanks called for by said earlier contract when and as directed by the Secretary of the Interior. (2) Provides for the construction at Pearl Harbor, T. H., of additional storage facilities up to 2,700,000 barrels at cost and without profit to contractor. (3) Provides for the furnishing of fuel oil to fill the new construction and for charging the government for such fuel oil delivered at Pearl Harbor, T. H., at the Bay Point, Cal., market price plus the cost of transportation by tankers to the place of storage. (4) Provides for the furnishing of other petroleum products than fuel oil and for filling the facilities to be constructed at Pearl Harbor, T. H., for such products under this contract at the contractor’s current sales price. In no ease, however, is the cost to the government for such products to exceed the then current priees under Navy contracts for similar products. (5) Provides for furbishing without charge during the life of this contract storage for 1,000,000 barrels of fuel oil at Los Angeles, Cal., and for the filling of such storage with fuel oil to be exchanged for crude oil and placing the same in custody of the government, the said storage to be filled with fuel oil for the Navy as soon as the government royalty oil from the California naval • reserves shall have paid for all work done and crude oil products furnished at Pearl Harbor, T. H. Contractor also agrees to bunker government ships from said 1,000,000 barrels of fuel oil at cost, and, further, to carry during the life of this contract all royalty oils derived from leases in naval petroleum reserves in California to the refinery or tidewater at Los Angeles, Cal., free from any pipe line charge. (6) Contractor further agrees, for a period of 15 years from the date of this contract and subject to the Navy demands, to maintain 3,000,000 barrels of contractor’s C grade fuel oil in certain storage depots of contractor on the Atlantic Coast, and provides, further, that any part of said fuel oil will be allocated to the Navy on 30 days’ written notice and held for not more than 6 months in storage for the Navy at one cent per barrel per month storage charges until and unless such oil is purchased or released by the Navy, such allocation, however, shall not be maintained more than six months, and it provides, further, “that if and when such oil is purchased by the Navy, contractor shall be paid therefor at market prices from current available Navy funds, and no charge shall be made against the government under this section except for and on account of oil so set aside.” (7) Contractor agrees to furnish at such points as the government shall designate a reasonable amount of crude oil products and storage facilities therefor similar to those agreed by this contract to be furnished at Pearl Harbor, T. H., when the royalty oils delivered by the government to the contractor shall have been sufficient to pay for the Pearl Harbor project pursuant to the contract of April 25, 1922, and also for the additional work and crude oil products in this contract agreed to be furnished. (8) Gives the Navy the privilege of purchasing at 10 per cent, less than market price at tidewater any additional available fuel oil produced from government lands in the California Naval reserves which it might require above the amount which it is entitled to in exchange for its royalties, and provides further: ‘ ‘ Said market price to be determined from time to time in such manner as may hereafter be agreed upon by the parties hereto, payment therefor to be made from current available Navy funds. ’ ’ (9) Agrees to sell to the Navy certain manufactured petroleum products from the California refinery on the same terms as those specified in subdivision 8 hereof. Article II — Recites: “Por the considerations herein mentioned and contained, to wit, the furnishing of oils in storage and facilities and options as specified above, the government agrees:” A. To sell and deliver all its royalty oil from Nos. 1 and 2 reserves, subject to its obligation .to deliver enough thereof to pay out the contract of April 25, 1922, “until the government’s obligations under this instant contract are discharged, and in any event for a period of 15 years from the date of the expiration of said contract of April 25, 1922, the government to be given credit by contractor for such crude oil delivered by the government at the published field price thereof on date of -delivery and for such gas and easing-head gasoline at the prices and under the conditions fixed in the various leases, any surplus of government credits thus accruing are to be satisfied by delivery of fuel oil or other petroleum products, by construction of additional storage facilities, or to be payable in cash, as the government may at that time elect.” B. To lease, and does lease, pursuant to the formal written lease dated December 11, 1922, to the Pan-American Petroleum Company, a corporation, lands in naval petroleum reserve No. 1, described in the accompanying lease of said date, and consisting of approximately 32,000 acres. Article III — Provides for the gauging of the oils, and further that any difference in debits and credits between the parties on account of crude oil received by the contractor, on the one hand, and expenditures made by contractor for storage facilities and crude oil products delivered by him,' on the other, shall bear interest at the rate of 5 per cent, per annum, determined on monthly balances, and also provides that the interest provisions contained in the contract of April 25, 1922, shall cover fuel oil as well as construction. The lease of December 11, 1922, is practically a lease to exhaustion of production of oil and gas on all of the then unleased portions of naval reserve No. 1, the term of said lease being expressed as “for a period of 20 years from the date hereof and so' long thereafter as oil or gas is produced in paying quantities from said lands,” at sliding scales of royalties ranging from 12% per cent, to 35 per cent, for oil of 30 degrees Baumé or over, to from 12% per cent, to 30 per cent, for oil of less than 30 degrees Baumé, the royalties increasing with the amount of oil produced per well. This lease gives the Pan-American Petroleum Company the unrestricted right to drill and develop, except in the land within naval reserve No. 1 west of the range line dividing range 24 east and range 23 east M. D. M., but includes the right to drill and develop immediately the following sections west of said range line, to wit: Sections 24, 25, 26, and 35, in township 20 south, range 23 east M. D. M. It recognizes a certain agreement between the Secretary of the Interior and the Pacific Oil Company restricting drilling upon certain portions of the leased area, but provides that upon request of the Pan-American Petroleum Company the Secretary of the Interior will give to the Pacific Oil Company the six months’ notice provided for in said agreement, and provides that upon the expiration of such six months’ notice the Pan-American Petroleum Company shall have the same rights with respect to drilling, etc., upon said lands as upon all other lands covered by the lease lying east of the range line dividing ranges 22 and 23, as aforesaid. The amended bill of complaint avers material matters that are either admitted by the parties to this suit or have been so thoroughly proven by the evidence that there can be no question concerning them. Among these are the following: That from March 5, 1921, until March 4, 1923, Albert B. Pall was the duly appointed, acting, and qualified Secretary of the Interior of the United States of America; that during all times material to this controversy Edwin Denby was the duly appointed, qualified, and acting Secretary of the Navy of the United States of America; that during all times concerned in this controversy, and during all of the negotiations between officers of thé government and the defendant corporations, Edward L. Doheny was the dominant and managing executive officer of the defendant corporations, and during such times was either the owner of or in control of a majority of the stock of said defendant corporations; -that the Pan-American Petroleum Company is a wholly owned subsidiary corporation of Pan-American Petroleum & Transport Company. The amended bill alleges that prior to May 31, 1921, Albert B. Pall obtained from the President of the United States, who acted pursuant to representations made by said Pall, but in good faith, a certain executive order, as follows: “Executive Order. “Under the provisions of the act of Congress approved February 25, 1920 (41 Stat.-437), 'authorizing the Secretary of the Interior to lease producing oil wells within any naval petroleum reserve, authorizing the President to permit the drilling of additional wells or to lease the remainder or any part of a claim upon which such wells have been drilled, and under authority of the act of Congress approved June 4,1920 (41 Stat. 812), directing the Secretary of the Navy to conserve, develop, use, and operate, directly or by contract, lease, or otherwise, unappropriated lands in naval reserves, the administration, and conservation, of all oil and gas bearing lands in naval petroleum reserves Nos. 1 and 2, in California, and.naval petroleum reserve No. 3, in Wyoming, and naval shale reserves, in Colorado and Utah, are hereby committed to the Secretary of the Interior, subject to the supervision of the President; but no general policy as to drilling or reserving lands located in a naval reserve shall be changed or adopted, except upon consultation and in co-operation with the Secretary or Acting Secretary of the Navy. The Secretary of the Interior is authorized and directed to perform any and all acts necessary for the protection, conservation, and administration of the said reserves, subject to the 'conditions and limitations contained in this order and the existing laws, or such laws as may hereafter be enacted by Congress pertaining thereto. “Warren C. Harding. “The White House, May 31, 1921.” Plaintiff avers .that such order was void and of no force or virtue, and was known to be void by Albert B. Fall and Edward L. Doheny and the defendants in this ease; that Fall knowingly, falsely, and for the unlawful purpose of enabling him, as the Secretary of the Interior, to effect a fraudulent transfer of rights- in certain public lands to the defendant corporations controlled by Edward L. Doheny, had represented to the President that said order was proper, necessary, and for the best interests of the government and the public, and that all of said representations were false, fraudulent, and untrue, and at the time were so known to said Albert B. Fall. The answer admits the making and promulgation of the executive order by the President in good faith, denies that defendants or Edward L. Doheny had any knowledge of its illegality or invalidity, and denies all allegations of fraud with respect thereto. There is no evidence in the case that Mr. Doheny or the defendant companies had anything to do with the making or procuring of the executive order. , No effort was made by the plaintiff to establish the charge of false representations by Secretary Fall to the President relative to the promulgation of said executive order by direct evidence, but it is contended that the circumstances of the situation sustain the charge. Mr. Fall was not called as a witness in this case by either party to the action. Mr. Doheny was called by the plaintiff, but when interrogated by counsel for plaintiff asserted and claimed his constitutional .right, and refused to testify because of the pend-ency of an indictment against him in the District of Columbia involving matters material to this ease,- and, counsel for plaintiff having conceded that such indictment was pending and undetermined, this court thereupon recognized Mr. Doheny’s constitutional right to remain silent, and he did not testify further as a witness in this case. The only oral testimony concerning the obtaining- of the executive order from President Harding was produced through a statement from Theodore Roosevelt, who during Secretary Denby’s administration was Assistant Secretary of the Navy, and whose testimony will be noted later. The rule of law as to the degree of proof required to establish false representations or pretenses, whether by direct or circumstantial evidence, is that it must be established by clear and convincing proof. The original text of the executive order was prepared in the Interior Department. As early as the first part of May, 1921, and probably some time in the preceding month, Secretary Pall had spoken to Assistant Secretary of the Interior Finney of a plan he had in mind by which the Interior Department would undertake to administer some of the lands in the naval oil reserves, and at such time had asked Finney to give him a brief statement as to the applicable law. Mr. Finney prepared such a statement and expressed the opinion therein that under section 18 of the Oil Leasing Act of February 25, 1920 (41 Stat. 437 [Comp. St. Ann. Supp. 1923, § 4640%i]), and the Act of June 4, 1920 (41 Stat. 812), “the President may commit to the Secretary of the Interior the matter of authorizing additional wells or leases under section 18 of the Leasing Act, and the Secretary of the Navy may, under authority of the Naval Appropriation Act cited (Act June 4, 1920), request the Secretary of the Interior to handle for the Navy the conservation, development, and operation of other lands in naval reserves. The royalties from existing leases and such other royalties as may be derived from future leases in naval reserves may be turned over to the Navy Department directly, or may be exchanged by the Secretary of the Interior, to the end that the Navy may have its equivalent in fuel oil.” After submitting this statement to Secretary Fall there was prepared in the Interior Department, probably by Mr. Finney, a letter, which was signed by Secretary Fall and sent to the Secretary of the Navy, as follows: “Department of the Interior. “Personal. Washington, May 11, 1921.. “The Honorable The Secretary of the Navy — Dear Mr. Secretary: Referring to our conversation yesterday, and to your suggestion to the President that the Secretary of the Interior be placed in charge of administration of the laws relating to naval reserves, I am submitting herewith for your consideration a brief memorandum stating the facts and law with respeet to naval reserves, a tentative form of letter for your signature if it meets with your approval, and a form of executive order for the President’s signature, if it meets your suggestions of yesterday. Please consider the same and give me any criticisms or suggestions whieh may occur to you. If they meet with your approval, and no changes occur to you, kindly return them, with your approval, in order that the matter may be taken up with the President. “Respectfully, “[Signed] Albert B. Fall, Secretary. “Inelosure 19756 “(Initials EOF.)” With this letter there was inclosed: (1) The draft of a proposed letter from the Secretary of the Navy to the President, as follows: “My Dear Mr. President: The Act of February 25, 1920 (41 Stat. 437), authorizes the Secretary of the Interior to lease producing wells in naval petroleum reserves, and .authorizes the President to permit the drilling of additional wells or to lease the remainder or any part of any claim in such reserves, with preference right to the claimant or his successor. A clause in the appropriation act for the year ending June 30, 1921 (41 Stat. 812), authorizes the Secretary of the Navy to take possession of unappropriated lands within naval reserves, and to conserve, develop, use, and operate the same ‘directly or by contract, lease, or otherwise.’ To avoid conflict, delay, and duplication, it occurs to me that the matter may be best administered through one agency, and I have suggested that the Secretary of the Interior be directed, .under your supervision, to administer all of the various provisions of law cited relating to naval petroleum reserves heretofore created by Executive order, the oil and gas accruing to the United States from the operation of any wells in said reserves to be utilized by and for the Navy, in accordance with the provisions of existing law. Under the authority vested in me by said appropriation act, I request and reeommend that you take the necessary steps to impose this duty upon the Secretary of the Interior. The details incident to this transfer of authority and to the disposition of the oil and gas produced will he arranged cooperatively between the Interior Department and this department. “Sincerely, Secretary. “The President, The White House.” And (2) the draft of a proposed executive order, as follows: “Executive Order. “Under the provisions of the act of Congress approved February 25, 1920 (41 Stat. 437), authorizing the Secretary of the Interior to lease producing oil wells within any naval petroleum reserve, authorizing the President to permit the drilling of additional wells or to lease the remainder or any part of a claim upon which such wells have been drilled, and under authority of the act of Congress approved June 4, 1920 (41 Stat. 812), authorizing the Secretary of the Navy to conserve, develop, use, and operate, directly or by contract, lease, or otherwise, unappropriated lands in naval reserves the conservation, development, use, and operation of oil and gas bearing lands in naval reserves Nos. 1 and 2, California, naval reserve No. 3, Wyoming, and naval oil shale reserves in Colorado and Utah, is hereby committed to the Secretary of the Interior, under supervision of the President, and he is authorized and directed to perform any and all acts necessary for the protection, administration, and development of the resources of said reserves, subject to the conditions and limitations of existing laws or such laws as may be hereafter enacted by Congress pertaining thereto. -. “The White House, May-, 1921.” The inclosed proposed letter from the Secretary of the Navy to the President was never signed by Denby and was never transmitted to the President. The Interior and Navy Departments later conferred and agreed upon the text of an executive order, and the revised form was personally taken and presented to President Harding by Theodore Roosevelt, Assistant Secretary of the Navy, and upon Roosevelt’s statement to the President that the order in its then form was satisfactory to the Interior and Navy Departments it was signed by the President. There is no evidence in this ease as to any further conversation or representation by Secretary Fall to President' Harding relative to this executive order. Mr. Denby, although present throughout the trial, was not called as a witness. While the plaintiff failed to substantiate the allegations in the bill of false representations by Secretary Fall to President Harding, there can be no doubt from the evidence that Secretary Fall was very active in the movement which eventuated in the transfer of the administration and control of the naval oil reserves from the Navy to the Interior Department, and he appears to have at all times dominated the situation relative thereto; the record in this case1 indicating that Secretary Denby was passive, and even complacent, in the matter. In one of his early conferences with the Navy Council, Mr. Den-by stated that he was going to transfer control of the reserves to Secretary Fall because he considered the reserves “dynamite.” This was his attitude throughout all of the transactions, involved in this case. His participation in the making and executing of the agreements in suit was perfunctory, passive, and formal. Secretary Fall and Admiral Robison were the real, active, and efficient agents of the government in the negotiations which resulted in the contracts and leases in controversy. I am persuaded by an impartial consideration of the evidence to believe that Secretary Fall effectuated the idea of transferring the control of the naval oil reserves from that branch of the government to which they had been committed by Congress into his own hands. The executive order, as prepared by Finney and as sent to the Navy Department, did bodily and wholly transfer the reserves to Secretary Fall for administration, protection, and development. When the draft was submitted to the Navy Department, it was objected to by Assistant .Secretary Roosevelt, Admiral Griffen, and Commander Stuart, who felt very strongly that the transfer would be a mistake. Roosevelt communicated his and the naval officers’ objections to Secretary Denby, and urged that the land be not transferred to the Interior Department. But Denby informed him that their protest was too late, as the transfer had been agreed to* by the President, Secretary Fall, and himself. Roosevelt, after consultations with Admiral Griffen, who at that time was in charge of the naval oil reserves as Chief of the Bureau of Engineering of the Navy Department, suggested to Secretary Denby a modification of the proposed order. Secretary Denby told Roosevelt that, if he could obtain Secretary Fall’s approval to the change, it would be satisfactory to him. Roosevelt personally took the matter up with Secretary Fall, and Fall immediately assented to his suggestion. This action by Secretary Fall seems to negative bad faith, but I believe that Secretary Fall considered Secretary Denby’s passivity tantamount, to relinquishment. The concurrent and subsequent events in this matter confirm this belief. The change suggested by Roosevelt was the insertion in the order of the following language : “But no general policy as to drilling or reserving lands located in a naval reserve shall be changed or adopted, except upon consultation and in co-operation with the Secretary or Acting Secretary of the Navy.” Although Roosevelt was at first entirely opposed to the transfer, he was convinced later that, on account of the Interior Department being better equipped and organized to undertake the contemplated development of the naval oil reserves, it was proper and advisable to effect the transfer, subject to the vital reservation which was inserted in the executive order at his suggestion. It is clear that it was not the intention of the Navy to relinquish the control of its reserves to the Interior Department, and it is apparent that Secretary Fall’s original intention contemplated unrestricted and unqualified transfer of the reserves from the Navy to the Interior Department. The foregoing and other circumstances and events concurrent with and relative to the promulgation of the executive order east doubt upon the motives of Secretary Fall in furthering this transfer, and, when viewed in the light of subsequent events and transactions with Mr. Doheny and others, irresistibly lead me to conclude that Secretary Fall had conceived plans at the time the executive order was obtained to carry on negotiations relative to the naval oil reserves at least partially for his personal gain and benefit. That he did later personally profit financially by the transfer is in my opinion clearly shown by the evidence and circumstances in proof in this case. The essential allegations of the amended bill of complaint relative to the first ground of attack may be summarized as follows: That subsequent to May 31, 1921, Fall and Doheny agreed to bring about and to make oil leases on the naval oil reserves of the United States fraudulently, not in the public interests or in the nation’s welfare, but' secretly, by noncompetitive methods, and for the unlawful purpose of personal gain and profit to themselves; that in order to accomplish such unlawful purpose they also agreed to arrange and execute the contract of April 25, 1922, the lease of June 5, 1922, and the agreements of December 11, 1922, by secret, fraudulent, and discriminatory methods; that in furtherance of such purposes, and during the course of the negotiations concerning the said contracts and leases in controversy, Doheny secretly delivered to Fall $100,000 in lawful money of the United States; that the delivery of this said money was not only for the purpose of influencing Fall respecting the said contracts and leases in suit, and in furtherance of the alleged conspiracy, but that Fall’s official action in the premises was influenced by such payment; and further that, regardless of such alleged conspiracy, such payment of money was of and in itself an act of such flagraney and wrongfulness by Fall and Doheny as to vitiate and annul all of the contracts and leases in suit upon the ground of sound public policy. The defendants’ answer denies generally and specifically any fraud or conspiracy in the making of the contracts or leases in suit, and avers that they were lawfully made and constitute binding agreements. A conspiracy is a combination of two or more persons to effect an illegal object as an end or means. It is not necessary that the joint purpose or intent of the aetors be to commit a criminal or even an unlawful act. It is sufficient if their intent is to do or accomplish a lawful act by surreptitious or unlawful means. This is especially true when the object of the joint purpose of the aetors is the formation or making of a public contract with an officer of the Government. The conspiracy alleged in the amended bill, while not charged as a crime, contains the elements of a criminal conspiracy. This case, however, is a civil action, and not a criminal prosecution. It is not necessary that the conspiracy be proven to the same degree of certainty as would justify a conviction of Fall and Doheny, if they were on trial for criminal conspiracy. The conspiracy in this case has been sufficiently established to require cancellation of the contracts in suit, if and when, after a fair and complete comparison and consideration of all the evidence and circumstances in proof, the greater probability is in favor of the existence of the conspiracy alleged. If the issue of fraud or conspiracy in a civil suit is dependent upon circumstantial evidence, the inference of fraud or conspiracy must be reasonable, probable, and unstrained. In such event the conspiracy has been clearly proven. To conspire to defraud the United States means primarily to cheat the government out of property or money, but it also means to- interfere with or obstruct one of its lawful governmental functions by deceit, craft, or trickery, or at least by means that are dishonest. It is not necessary that the government shall be subjected to property or pecuniary loss by the fraud, but only that its legitimate official action and purpose shall be defeated by misrepresentation, chicane, or the overreaching of those charged with carrying out the governmental intention. Hammerschmidt v. United States, 265 U. S. 182, 44 S. Ct. 511, 68 L. Ed. 968. The Supreme Court of the United States has uniformly enunciated the principle that in cases of conspiracy or agreement to defraud the United States the ultimate question is not whether the fraud practiced must have inflicted upon the government pecuniary loss, but that the injury is complete as far as the grievous wrong is concerned when the purpose and effect of the agreement or transaction is to defeat a lawful function of the government. Haas v. Henkel, 216 U. S. 462, 30 S. Ct. 249, 54 L. Ed. 569, 17 Ann. Cas. 1112. It is true that no civil action lie§ for a conspiracy, unless there be an overt act that results in damage to plaintiff; but the rule announced by the Supreme Court of the United States in the above-cited and other eases shows that in cases similar to the one at bar the damages referred to are not necessarily pecuniary loss. If the eases cited by defendants similar to United States v. San Jacinto Tin Co., 125 U. S. 273, 8 S. Ct. 850, 31 L. Ed. 747, can be considered to be in point here, there is nothing said by the courts in any of them that would deprive the United States in this suit from obtaining cancellation of the contracts in question, if fraud, official misconduct, or conspiracy, as alleged, has been proven, because by the contracts in suit the nation has been deprived of its control of its naval oil reserve, And, if such loss is attributable to official corruption, then the wrong done to the nation requires the surrender by the defendants of the governmental property so wrongfully obtained. In many of the cases cited by defendants the real party in interest was not . the United States. Private parties were seeking to enforce essentially private rights in the name of the United States. The United States as a suitor, either in its governmental or proprietary capacity, was not interested in so far as its property right was concerned in the result off the suits, and hence in such cases was held to have suffered no injury. But all of these decisions establish the rule, which .is peculiarly applicable in the case at bar, that the right to the remedy sought by the amended bill in this ease exists when the government has an interest in the remedy sought by reason of the interest in the land, or when the fraud has been practiced on the government and operates to its prejudice, or when the duty of the government requires sueh action. There has been no decision of the Supreme Court extending the rule of such cases as Hyde v. Shine, 199 U. S. 62, 25 S. Ct. 760, 50 L. Ed. 90, or United States v. San Jacinto Tin Co., supra, to suits in equity brought under a law similar to the Act of June 4, 1920, and it is very doubtful in my mind whether the rule of these cases can be applied here, because the act under which these contracts and leases were made is not a part of the public land laws of the United States, all of which were designed for the primary purpose of seeing that the lands which were open to settlement might be distributed among individuals, and might be availed of primarily for the benefit of individuals, and incidentally, of course, for the benefit of the United States by distributing the population and by offering inducements for citizens to go to various localities where but scant population existed. The naval reserves were never intended to be administered or controlled in the same manner or for the same purposes as other public lands. They were intended primarily and solely for the use and benefit of the United States Uavy, and the law which guides the administration of the naval reserves stands alone, without any other statutes, and is the .sole measure of the legislative intent with regard to the subject-matter thereof. However, it cannot be said that the United States has not suffered injury or loss of a pecuniary nature by the fraud shown in this case. It has parted with, for a period of 15 years, at least, all' of the oil and petroleum products of its naval oil reserves. It has relinquished its right to make more favorable contracts and leases than those with the defendants. It has been prevented from obtaining more advantageous terms by competition for the leases. It has enabled the defendants to obtain royalty oil from other government lessees that the defendants have been selling to another oil company at a premium above market prices. But I do not base the right of the United States to cancellation and rescission of the contracts in suit as much upon the peeuniary or money nature of the injury shown as upon the right of the United States to be restored to the use and possession of its naval oil reserves, where it has relinquished them to private enterprise because of fraud, undue favoritism, and misconduct of its officers. The charge in this ease does not concern so much pecuniary loss to the United States as it does the right of the United States to annul contracts by which the nation’s naval oil reserved, set apart by Congress exclusively for governmental and national purposes, have been fraudulently and wrongfully obtained by private persons or bodies, through wrongful acts of government officers acting conjointly with such private persons or agents of private bodies. Any corrupt or unlawful arrangement or agreement in which an official of the government intentionally functions concerning public matters for his private and mercenary gain is an injury and damage to the government, regardless , of whether pecuniary loss is sustained by the government. The nation, in leasing its naval oil reserves, does not assume the attitude of a mere bargainor of oil-bearing lands for a money value. These lands are held in trust for the United States, and the trustees — that is, the public officers — who administer and control them can do so only for the public welfare and in a manner designed to preserve the integrity of government. Secretary Fall was a trustee of the highest order in his transactions relative to the naval oil reserves. If a trustee is prompted to act, and does in fact act, because of personal and clandestine motives, and if by so acting he acquires private financial benefit, his beneficiary has sustained pecuniary loss; for it is only because of his fiduciary relationship that he is enabled to deal with the public property at all and his sole emolument for doing so is his salary. Whatever the $100,000 that was transferred to Secretary Fall hy Mr. Doheny, the principal officer of the defendant corporations, may he called, and regardless of the question whether Mr. Fall would have obtained it if he had not been Secretary of the Interior of the United States, and at the time transacting public business as such with Mr. Doheny, the fact is that Secretary Fall did obtain it when he was Secretary of the Interior of the United States, and a trustee of the public lands of the United States, and when, as such, he was negotiating with Mr. Doheny concerning such lands; and the effect of such transaction, in and of itself, constitutes a serious injury and damage to the beneficiary, the United States of America. Moreover, assuming that the right to cancellation and rescission does not ordinarily exist in a suit in equity upon the mere proof of conspiracy, or moral wrong, or breach of ethics, without further showing resultant pecuniary loss, it is questionable whether such doctrine applies in this particular suit. This action is sui generis. It is not brought under the ordinary existent processes of the law. It is specially brought. The Joint Resolution of Congress (volume 1, U. S. Stat. 68 Cong. §§ 1-6 [43 Stat. 6]) declares that “the said leases and contract are against the public interest and that the lands embraced therein should be recovered and held for the purpose to which they were dedicated,” and not merely authorizes, but directs, that suit be instituted for the cancellation and annulment of the specific contracts and leases in suit. It would seem, therefore, that the lawmaking power, with respect to these particular public contracts and leases, intended to and did consider their effect as so injurious and pernicious to public welfare and governmental integrity, and so inimical to the purposes for which the naval petroleum reserves were segregated from the public domain, as to single them out for special and extraordinary consideration by a court of equity. It appears that Congress has said that, if the fraud and misconduct is sufficiently legally proven, then, regardless of the ordinary rule of showing mere money damage, these contracts and leases should be annulled. Considering the evidence in this ease under the foregoing principles of law, the allegations of fraud and resultant damage contained in the amended bill have been in general sustained. In my opinion it has been clearly shown that Secretary Fall and Mr. Doheny had secretly agreed that portions of the naval oil reserves were to be leased to companies controlled by Mr. Doheny by privileged, unfair, and discriminatory means, and that the contracts and leases in suit were and are the result of such secret understanding and agreement. Before Mr. Fall became Secretary of the Interior, the naval oil reserves had been controlled by the Navy Department under the authority of the Act of Congress of June 4, 1920 (41 Stat. 812). It was only in compromise and settlement of claims concerning rights to public lands under preexisting laws that the Interior Department had any powers or concern with such reserves. Under the Leasing Act of February 25, 1920 (41 Stat. 437), the Secretary of the Interior did exercise certain rights with respect to royalty oils coming to the government from leases in the naval oil reserves; but neither that act nor any other law gave the Secretary of the Interior any power whatever to lease or otherwise develop naval reserve lands,, except in cases of compromise of pre-existing placer mining claims. The President of the United States, under the Leasing Act, supra, had a limited further power over naval reserve lands, but no general power. There was no general power or discretion vested by Congress in any officer or department to make such disposition or use of naval reserve lánds, or of royalty oil accruing under leases of these lands, as might be best for the interests of either the Navy or of the United States, except under the authority of the Act of June 4, 1920, supra. Congress by this law intrusted to the Secretary of the Navy the conservation, development, use, and operation of these valuable and important public and governmental lands. The legal aspect of this measure will be considered in another portion of this opinion, dealing with the second general contention of the plaintiff in this case. In the present consideration it is only necessary to advert to the Act of June 4, 1920, as manifesting a clear- and unmistakable intention by Congress to repose exclusive control over the naval oil reserves in the Secretary of the Navy, pursuant to the terms of the act. In line with the policy of the government, as expressed in said act, and in April, 1920, Secretary of the Navy Daniels had established in the Navy Department the Oil Fuel Office, and had detailed Commander H. A. Stuart thereto. This office was under direct and immediate control of the Secretary of the Navy, and continued to be so throughout the administration of Secretary Daniels, being carried over and continued under Secretary Denby until he, by an order dated October 18, 1921, transferred it to the Bureau of Engineering of the Navy Department, and made it immediately subordinate to and under the direct supervision of that bureau. Friction and discord was manifested between Secretary Fall and the naval officers in charge of the reserves shortly after Secretary Fall assumed charge of the Interior Department, and this condition pevailed until, as I have stated, the Oil Fuel Office in the Navy was abolished and all matters pertaining to the reserves were assigned by Secretary Denby to the Engineering Bureau of the Navy. The Chief of this Bureau at the time was Admiral J. K. Robison, who had been detailed as such about October 1, 1921. Admiral Robison was a friend of Edward L. Doheny, and during the World War his son, Edward L. Doheny, Jr., had been a naval officer-on a ship commanded by Admiral Robison, and a friendship and attachment thus formed had grown and increased between the Admiral and the Dohenys, until their relations at the time of Admiral Robison’s detail as Chief of the Engineering Bureau of the Navy are best shown by the following letter, written by the Admiral when he assumed his new command: “October 6, 1921. “My Dear Mr. Doheny: I have wanted to write to tell you of the good fortune that has come to me. Because of the many ways in which you have indicated your friendship for me, I am sure that you will be glad. The President has nominated, I have been confirmed, and am now serving as Engineer in Chief of the Navy. It is a pretty good billet. As you know, it gives me control of large activities, rank while holding the office of Rear Admiral, and in particular it gives me responsibilities and authority in connection with the maintenance and up-building of our Navy that I am glad to assume. To have been selected from my fellows for this position is grateful; the principal joy that I get, of course, comes from the satisfaction of my family and friends. With best wishes for your future, and with affectionate remembrance of Mrs. Robison and myself to your family, I am, “Most cordially yours, “J. K. Robison, “Engineer in Chief, U. S. Navy. “Mr. E. L. Doheny, President, Mexican Petroleum Company, 120 Broadway, New York, N. Y.” In 1917, on an occasion when Mr. Doheny visited his son on board ■ a warship commanded by Admiral Robison, the Admiral and Mr. Doheny had discussed casually the naval oil reserves, and Mr. Doheny had told Admiral Robison that, on account of drilling near the reserves by outside private parties, the oil was being drained off the reserve, and that it would not be long until there would be no oil left in the reserves. This was the only conversation or dealing between Admiral Robison and Mr. Doheny until after Admiral Robison vras placed in charge of the reserves by Secretary Denby in October, 1921. On October 9, 1921, Admiral Robison had a conference with Secretary Fall regarding the naval petroleum reserves. At this conference he learned of a letter concerning the reserves that Secretary Fall had written to Secretary Denby in July, which will presently be referred to. This was his first connection with the reserves. He had not at that time discussed the reserves with his chief, Secretary Denby. As the result of his conferences with Secretary Fall and others in the Interior Department, he found the opinion that the reserves were being rapidly depleted by drainage, and he then remembered the talk he had with Mr. Doheny in 1917. In conjunction with Secretary Fall he then set out to formulate and to execute some plan to exchange the crude oil in the reserves for fuel oil to be stored at different points. Admiral Robison, when acting as aide to Secretary Denby in March, 1921, and later upon being detailed to the Engineering Bureau, manifested an ardent and patriotic desire to construct and supply a reserve oil fuel station at Pearl Harbor, Hawaii, and in' general to adopt a program for the establishment and construction of reserve oil fuel stations for the Navy, in order to strengthen the national defense. After his conferences with Secretary Fall, his desire became more intense, and he then concluded, if possible, to use the royalty oil from naval reserves to build such stations, and to supply and store them with fuel oil for future naval use. The testimony of Admiral Robison and the circumstances in proof convince me that Admiral Robison had no ulterior motive or mercenary purpose in any of the transactions involved in this case. This was an entirely new activity, and was one of doubtful legal authority. There was a serious question at that time in the minds .of Secretary Fall, Admiral Robison, Mr. Doheny, and every other person who discussed or contemplated the subject as to whether the right to establish reserve oil fuel stations existed without further legislation. It was then doubtful in the minds of all whether the Act of June 4, 1920, was broad enough to authorize the program. Up •to this time the royalty oil due the United States from leases in the reserves had been either sold outright and the money deposited in the Treasury, or this oil had supplied merely current naval needs. It was Admiral Robison’s fervent purpose to carry out this new project, if possible, and to do so without going to the Congress for further legislative authorization. Admiral Robison and the Dohenys visited socially, and discussed the naval oil reserves and the proposed Pearl Harbor project as early as December, 1921, and Mr. Doheny told Admiral Robison during this time that his company would bid on the Pearl Harbor project, and that its bid would be one that would not involve one cent of profit to him or to his company. Admiral Robison, in his enthusiasm over the possibility of accomplishing his desire to strengthen the national defense, told Secretary Fall of Mr. Doheny’s promise. Secretary Fall, however, had previously seen and talked with Mr. Doheny regarding the plan of using royalty oil for tankage, and it is clear that Mr. Doheny was already favorable to the plan, and had told Secretary Fall that he would make a bid thereon and that his bid would be at cost. That Secretary Fall conceived the plan of exchanging the royalty oil due to the United States from leases on the naval petroleum reserves for fuel oil in storage tanks, and had suggested to Secretary Denby, long before Admiral Robison became connected with the plan, that he (Fall) would undertake to effectuate the idea, if Denby was willing, is positively shown by these two letters: "Department of the Interior. "690-6 Washington, July 23, 1921. “13668-84:278 "Hon. Edwin Denby, Secretary of the Navy- — Dear Mr. Secretary: In connection with the recent authorization to the Pan-American Petroleum Company and the United Midway Oil Company to drill 22 offset wells in naval petroleum reserve No. 1, California, I would like to be advised, as promptly ^ as possible, what arrangements the Navy desires to be made for the handling and disposition of its royalty oil from said wells, as well as from any other wells in naval reserves, to which the Navy is entitled to royalty in kind. As the lease provides that purchasers will take care of the oil only for a limited period, it is important that provision be made to dispose of same promptly. I suggest the desirability of effecting 'an exchange of the crude oil received as royalty for an equivalent value of fuel oil, to be stored without expense to the United States by the other party to the exchange. Preferably the exchange should be, not only of’ crude oil fqr fuel oil in storage, but for the tanks containing the Navy’s stored oil. In other words, my suggestion is that the crude oil be exchanged for tanks and fuel oil, the title to both to be vested in the Navy as a result of the exchange. If this plan meets with yonr approval, and you desire me to undertake to consummate the arrangement, I shall be glad to do so. In any event, I, should like to hear from you on the subject as soon as possible. “Sincerely, “Albert B. Fall, Secretary.” “Washington, July 29, 1921. “My Dear Mr. Secretary: Replying to your letter of the 23d of July, I am glad to acquiesce in the suggestion made by you. It will be of great benefit to the Navy to have the royalty crude oil from wells on the naval reserves (both those already in operation and those to be drilled by the Pan-American Petroleum Company and the United Midway Oil Company) exchanged for fuel oil at tidewater, to be stored, if practicable, without expense to the government, and, if possible, for tanks in which' such fuel oil can be stored. As the Navy has no appropriation to pay for the cost of construction of tank storage, the acquisition of -tanks by exchange for crude oil from naval reserve wells will be most acceptable. While these tanks could be readily utilized at any point at tidewater, the usefulness to the Navy would be increased if they could be located at any one of the following points: San Diego, San Pedro, San Francisco Bay, Puget Sound, Honolulu, or Pearl Harbor, Hawaii. In view of the greatly reduced amount available under the appropriation ‘Fuel and Transportation’ for the present fiscal year, it would be of special benefit to the Navy to obtain royalty fuel oil at this time, as such oil would not involve a charge against this appropriation. . Edwin Denby.” This correspondence comes with significant swiftness after a notable letter written by Secretary Fall to Mr. Doheny on July 8, 1921, which will be referred to presently, and which is indicative of conferences and negotiations between Secretary Fall and Mr. Doheny, wherein plans for future drilling of the reserves were discussed between the two men. And it is a fair inference from this correspondence that t